GST panel fails to decide on rate, admin division

NEW DELHI: The Goods and Services Tax (GST) Council was unable to finalise two key elements of the proposed levy's framework -the rate structure and dividing its administration between state and central authorities -pushing the decision to early next month. Howe ver, Finance Mini ster Arun Jaitley said the Centre and states were close to a decision on the matter.

“On this issue we have virtually converged towards consensus,“ Jaitley said after the two-day council meeting ended Wednesday. The next meeting will be held on November 3-4 as the government races to complete work on the landmark reform by April 1.

With regard to rates, the sticking point was the proposed cess on luxury items and so-called sin goods such as tobacco to create a corpus to fund states that would lose revenue from the rollout of GST.

“The rate structure will depend on the source of funds on the basis of which compensation to the losing states will be funded,“ said Jaitley , who's also chairman of the council. After the compensation fund issue is resolved, the rates can be worked out, he said. “Whether the compensation is to be funded out of the rate structure itself or out of some special cess or out of any other sources, once this question is answered, then the rate structure can be determined independently .“

Central and state officials will examine the options before early November meeting that will take a call on rates.The council will then meet on November 9-10 to thrash out GST-related legislation. The winter session of Parliament that begins on November 16 is expected to pass all GST legislation in advance of its rollout.

MULTIPLE RATES

The Centre has proposed a four-slab structure -two standard rates of 12% and 18%, a lower one of 6% and a higher one of 26% -with five alternatives and a cess on luxury and sin goods to fund compensation to states. The lower tariff will apply to essential items and the highest to luxury and sin goods such as tobacco, cigarettes and alcohol.Services will be taxed at 18% and abatements will continue to reduce the levy's incidence on those deemed to be essential.

The draft tax proposal envisages that goods should be fitted into the bracket closest to the rates they are currently taxed at to ensure minimal impact on prices. Zero-rated items won't be taxed while those at 3-9% should fit into the 6% slab and so on.

Some states such as Kerala have said a top rate of 26% isn't high enough given that this is currently at a cumulative 35-40%. It feels a cess on luxury goods would distort GST and prefers a higher tax instead. Industry and tax experts also oppose the idea of a cess, saying it will complicate the issue.

“While multiple rate structure seems to be the only realistic way for arriving at a consensus for timely implementation of GST, possible imposition of a central cess comes as a disappointment for industry,“ said Pratik Jain, leader, indirect tax, PwC India. “Cesses, if imposed, will lead to cascading of taxes and complicate the overall structure. One hopes that the government will reconsider the decision on cess. Increasing the rate of GST slightly might be a better solution than having a non-creditable cess on several products.“

One proposal that's been made is to retain the clean energy and tobacco cesses while raising the tax rate on luxury goods.

TAX ADMINISTRATION

On tax administration, there is agreement that duplication has to be avoided.

“The underlying principle, which has been accepted, is that one assessee would be assessed by one authority only,“ Jaitley said.

Some states such as West Bengal presented new data to support the argument that states should be given exclu sive control of even those service providers with a turnover of more than Rs 1.5 crore per year.

The Centre had proposed a cross-empowerment model that will allow taxpayers to restrict their interaction to a single tax authority for central GST, state GST and integrated or iGST. Central and state GST are components of a single GST levied on intrastate sales while iGST will apply to inter-state sales.

At the previous council meeting, it had been decided that 11 lakh service providers registered with the tax department will be assessed by the central authorities and new ones will be shared with state authorities after due training.

Assessees with a turnover of less than Rs 1.5 crore annually will be assessed by state tax authorities and those above that through the new crossempowerment model. Under this model, tax administrators will use a formula to decide which assessees they will audit or register. Some states are not in favour of this.

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